Meituan vs. Alibaba vs. Ctrip Is About 3 Big Questions (Pt 4 of 4)

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Since visiting Meituan headquarters, I’ve written a quite a lot about the company (see Part 1, Part 2 and Part 3). And Meituan’s world is kind of fascinating right now.

  • They have gone public. Awesome. Congratulations.
  • A well-funded war has been launched against them by Ele.me (i.e., Alibaba) in food delivery. Ouch.
  • Meituan and several other digital giants have put a foot into ride-sharing (sort of).
  • And the digital giants (Ctrip, Alibaba, Meituan, Didi) are colliding in “local services”. It’s really, really interesting.

But when it comes to Meituan vs. Alibaba vs. Ctrip (which I think is the important fight), there are three questions that really matter.

  1. What consumer products and services does Metiaun need to remain competitive? Do they need ride-sharing and other mobility services? Both product and services? Hotel reservations internationally? Entertainment and digital media? Where are the industry barriers actually going to end up in Chinese consumer services?
  2. What physical assets (warehouses, retail locations) and real-world services (food delivery riders) do they need to be competitive? Asset-light services (hotel reservations online) tend to have better economics but asset-heavy (food delivery) can often get you better protection. What physical assets and services will be required in OMO (online-merge-offline) digital China?
  3. Can Meituan evolve from mostly a food order and delivery service to a full consumer marketplace? What does a winning strategy for Meituan against Alibaba look like?

Any thoughts on the above questions would be greatly appreciated.

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Three other points on Meituan’s background and the current situation.

Point 1: Meituan Is a Pure Creature of Digital China.

Founder Wang Xing is a serial entrepreneur and is famous for copying Western companies as his starting point. He then develops them from there. Meituan began as a copycat of Groupon and survived a brutal money war against a slew of other copycats (Kai-Fu Lee calls this the “war of a thousand Groupons”). And prior to Meituan, he launched copies of Twitter and Facebook (RenRen).

Meituan was launched in 2010 based on group buying. And Wang Xing was well-prepared for the copycat and money war that soon followed. Lots of competitors raised money and provided subsidies to acquire customers. And whoever gets the most market share can usually then raise more money (as market leader) and offer even more subsidies. It’s a bloody battle for market share fought with money. This pattern is pretty common in China, especially digital China. Knowing how to deal with copycats (and dirty tricks) is a necessary skill.

But surviving the money war is only phase one. After that, the strategy is usually to move into other products and services – and to differentiate your offering. You add more and more services to grow your user base, to gather data and to protect yourself with differentiation. That’s phase two.

And after coming out more or less on top in the Groupon money war, Meituan followed this pattern. They added lots of services in ticketing, hotels and such. They merged with Dianping in 2015. And they bought Mobike in 2018. This pattern is a big part of why they have such an interesting suite of products and services today. They are often referred to as the “Amazon of services” – but I think of them as mostly a highly-adaptive survivor of a brutal ecosystem. In this, they are really a creature of digital China.

Point 2: Competition in digital China is being shaped by platform business models.

Most of the often-discussed digital giants are platform businesses (Alibaba, Tencent, JD, Didi, etc.). At their core, they don’t buy and sell stuff or provide services themselves. They mostly connect user groups, including buyers and sellers of products and services. And they enable these groups to interact in various ways – and to do transactions (commercial, social and other). We can see platform business models in the physical world as well (bazaars, shopping malls, M&A bankers, matchmakers, etc.). But software companies are really good at creating platforms.

And there is real power in digital platforms – for a couple of important reasons:

  • Digital platforms scale fast and without much effort. There are low marginal costs so adding people to a digital platform doesn’t cost much. It’s a lot slower and more expensive to expand physical platforms like shopping malls.
  • They access value that is created by users and assets across an entire ecosystem. The assets are not necessarily within the company itself. For fixed assets, it is the difference between building your own factory vs. benefiting from all the factories in a region. For labor, it is the difference between a newspaper hiring reporters and LinkedIn enabling users to write articles. Digital platforms are good at leveraging the assets and productive ability outside of the company itself.
  • And while production and assets are distributed across a greater ecosystem, control and profits are centralized to the platform. That’s the amazing part. Relatively small companies like AirBnb, Uber and Didi can access, control and profit from assets and production across an entire ecosystem.
  • Finally, consumer-facing digital platforms can also benefit from some powerful competitive advantages – such as network effects, data network effects, a “share of the consumer mind” (Warren Buffett term), switching costs and supply-side economies of scale. I will go into this in detail in a series of articles next week.

So Alibaba and Ctrip are platform businesses. But Meituan is a bit of a mix. It began as a group buying site. And then it got into food delivery. That made it sort of half a traditional service business and half a platform. It now definitely has a platform that connects small service businesses and consumers. But it also has bike-sharing, which is not really a platform. So the Ctrip vs. Alibaba vs. Meituan question has a lot to do with pure platforms competing with a hybrid platform and traditional (but innovative) service business.

Point 3: Competition in digital China is also being shaped by digital transformation. This is not the same thing.

Digital transformation and platform businesses are not exactly the same thing.

Digital transformation is a much broader and more sweeping phenomenon. It about new software, data and digital tools (GPS, smartphones, robotics, etc.). You can digitize and re-imagine operations. You can capture data on consumers, operations and the market. You can give consumers exactly what they want – how and when they want it.

For example, retail and mobility in China are currently being turned on their heads by various digital and data technologies. We can see this in things like bike-sharing, cashier-less convenience stores, “new retail”, autonomous vehicles and smart cities. And we can see it happening in lots of other sectors – such as with new digital insurance products and the digitization of processes within hospitals, banks and insurance companies. A lot of the interesting things happening in China are digital phenomenon – but are not platforms.

So two big phenomena happening at the same time. And these two things tend to overlap because when you digitize a business, you often enable the creation of a platform business model. For example, once location was digitized by adding GPS to smartphones, it was possible to create a platform for ride-sharing (i.e., Didi).

So What About Meituan vs. Alibaba vs. Ctrip?

I don’t have clear answers to the above three questions yet. The digital competition game is getting more complicated, especially in China. And it’s happening really fast. Meituan vs. Alibaba vs. Ctrip is sitting at the epicenter of a lot of this.

  • We know what happens when a platform business like Alibaba or JD (a hybrid platform / vertically integrated business) competes with a traditional vertically integrated business like Suning or Gome.
  • We know how two platforms compete (Alibaba vs. Ebay).

But it’s not clear how a pure-play mobility platform (like Didi) competes with a conglomerate of several platforms and traditional businesses (like Alibaba). And it’s not clear how the shift from online assets to a mixture of online and physical assets (i.e., new retail) changes all things.

I’m working on some frameworks for all this, which I will start publishing soon. But this is where my thinking is at this point. Kind of a lot of theory in these 4 articles. Thanks if you made it all the way through.

Cheers, jeff

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I write and speak about digital China and Chinese consumers.

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